New SMSF penalty regime to kick in on July 1, 2014

Did you know you may have to fork out $10,200 if you lend money to a fellow self-managed superannuation fund (SMSF) member or a relative who is in dire need of some financial assistance? Or $1,700 for a breach as minor as failing to keep adequate records? The countdown is on, with only around four months remaining until the new SMSF administrative penalty regime kicks in on July 1.

If all this sounds familiar, it is because the SMSF penalty regime was essentially a measure that was due to be implemented by the previous federal government on July 1, 2013 but due to inadequate legislative support, the measure was held back. With the new government at the helm however, the measure has been given the nod and looks set to come into effect.

Currently, the Tax Office has a few ways in which it deals with non-complying funds. It can:

  • make an SMSF non-complying for tax purposes, take away its tax concessions and effectively force it to wind-up
  • accept an enforceable undertaking
  • take trustees to court and seek a civil penalty, or
  • disqualify SMSF trustees.

With its new regulatory powers however, the Tax Office will be able to prevent repeat breaches by:

  • issuing trustees with a direction to rectify contraventions within a specified timeframe
  • enforcing mandatory education for trustees where there is non-compliance with super law, so that trustees are aware of their obligations (the compulsory education course will be at their own expense), and
  • imposing administrative penalties that will be payable by the trustee, not out of the assets of the SMSF (refer to table below).

It is worth remembering that the new administrative penalty regime will involve a system of penalty points for various breaches – with each penalty point worth $170. The most common penalties for breaches will carry units that range from five units to 60 units, equal to a value of $850 to $10,200. This will be a change from the current system where each penalty unit is only worth $110, meaning the highest fine an SMSF could ever be administered with was $6,600.

What the Tax Office will not do is:

  • issue binding rulings in relation to SMSFs
  • collect data on SMSF borrowing from credit providers (the Tax Office will instead collect data directly from SMSFs as part of its collection and publication of SMSF data)
  • prohibit investment in in-house assets, and
  • require SMSFs to provide information to members on an annual basis.

Do ensure your SMSF is up to speed with all its administrative and compliance obligations. Consult this office to familiarise yourself with the new administrative penalties to avoid landing in hot water with the Tax Office.

Breach Penalty units Amounts
Failure to comply with Tax Office education directive 5 $850
Failure to appoint an investment manager in writing when one is appointed 5 $850
Failure to provide information on approved form in prescribed time upon establishing fund 5 $850
Failure to complete a form with requested information as part of ATO’s statistical program 5 $850
Failure to prepare financial statements 10 $1,700
Failure to keep trustee minutes for at least 10 years 10 $1,700
Failure to keep records of change of trustees for at least 10 years 10 $1,700
Failure to sign trustee declaration within 21 days of appointment and keep for at least 10 years 10 $1,700
Failure to keep member reports for 10 years 10 $1,700
Failure to notify the Tax Office of a change of SMSF status e.g. fund ceasing to be an SMSF 20 $3,400
Failure to comply with operating standards 20 $3,400
Lending or providing financial assistance to fund members or relatives 60 $10,200
Borrowing, except as permitted e.g. limited recourse borrowing arrangement 60 $10,200
Contravention of in-house asset rules 60 $10,200
Failure to notify an event with significant adverse effects on fund’s financial position 60 $10,200
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